300727

Question 1

Which of the following describes the appropriate reporting treatment for a change in accounting estimate?

In the period of change and future periods if the change affects both

By reporting pro forma amounts for prior periods

In the period of change with no future consideration

By restating amounts reported in financial statements of prior periods

Answer 1

In the period of change and future periods if the change affects both

Changes in accounting estimates are handled on a prospective basis—in the current year and future years. There is no retroactive application. An explanation and justification must be disclosed in the notes.

Question 2

Accounting Change

Answer 2

An accounting change is a change in (1) an accounting principle, (2) an accounting estimate, or (3) the reporting entity. The correction of an error in previously issued financial statements is not an accounting change.

FASB ASC 250-10-20

Question 3

Change in Accounting Estimate

Answer 3

A change in accounting estimate is a change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities. A change in accounting estimate is a necessary consequence of the assessment, in conjunction with the periodic presentation of financial statements, of the present status and expected future benefits and obligations associated with assets and liabilities. Changes in accounting estimates result from new information. Examples of items for which estimates are necessary are uncollectible receivables, inventory obsolescence, service lives and salvage values of depreciable assets, and warranty obligations.

A change in accounting estimate is accounted for in (a) the period of change if the change affects that period only or (b) the period of change and future periods if the change affects both. A change in accounting estimate is not accounted for by restating or retrospectively adjusting amounts reported in financial statements of prior periods or by reporting pro forma amounts for prior periods.

FASB ASC 250-10-20

Question 4

2312.01

Answer 4

Changes in accounting estimates are handled on a prospective basis—in the current year and future years. Note disclosure includes an explanation and justification for the change and the impact on current income and EPS (earnings per share).

Question 5

FASB ASC 250-10-45-17 to 45-20